however, will undoubtedly insist on negotiating the terms of that shift to make sure that China would faithfully implement all fundamental IMF requirements, as they negotiated for 15 years on China’s entry to the WTO and are now seeking to negotiate changes in China’s trade policies before according it the promised “market economy status.” To avoid the cost and inconvenience of actually moving headquarters, China could of course ask for some other major recognition of its status, such as the selection of a Chinese national as Managing Director (De Gregorio et al. 2018). Other alternatives can also be envisaged, such as the proposal in the text (chapter 10) that the quotas of China and the United States converge to equal levels over time, to recognize the rough equivalency that is likely to characterize their economic relationship in the decades ahead. Another possibility would be for China, if it continues to lead the world in providing development finance, to take the top spot at the World Bank while the United States stayed at no. 1 at the IMF (or vice versa).
A possible complication is the position of the eurozone. The 19 members of the euro area now have a combined quota much larger than the United States and would have a claim to become the new host “country” (Frankfurt? Brussels? Paris?) if they could agree to consolidate their representation and speak with a single voice (although the IMF charter refers to “member countries” and it is unclear whether a currency area would qualify). China’s projected growth path would not place it beyond the eurozone before 2050 if its growth rate were to drop to 4 percent after 2030 and 3 percent after 2040, so the “rough equivalency” formulation could apply to the zone as well as to the United States and China.
The trade war between the United States and China has obscured the more fundamental competition between the two countries for global economic leadership. History shows that conflict between rising China and incumbent power United States is a real possibility; there is clearly a risk of an economic variant (at least) of the “Thucydides trap” (Allison 2018). Power transition theory suggests that risk is greatest during the decade or two when the newcomer is approaching and reaching the level of the previous leader, which is right now and the years immediately ahead. Former Australian Prime Minister Kevin Rudd, a China expert, calls this “the decade of living dangerously” (Rudd 2021).
The trade, investment, and technology wars of the last few years confirm that these risks are very real. US efforts so far have failed to restrain China or induce changes in Chinese policies that are needed to ease the conflicts. This competition is likely to be one of the most sustained, as well as most important, features of the world economy (and world politics more broadly) for the foreseeable future.
The Rise of China
China is likely to continue growing at least twice as fast as the United States and the other high-income countries for at least another couple of decades. As chapter 3 will show, it would then become at least roughly equivalent to the United States on most counts well before the middle of the century. Its catch-up pace accelerated with the coronavirus pandemic as its growth was curtailed much less than that of the United States and the other high-income countries.
China has become the largest engine of growth for the world economy. It replaced the United States in that role well over a decade ago, before the global financial crisis of 2008–9, but especially since. It has accounted for 25–30 percent of total world expansion over this period. It has already achieved global economic leadership in this important respect.
Size is, of course, not the only determinant of international economic power and leadership potential. China remains, on average, a relatively poor country with per capita incomes only one quarter that of the United States. On a “power index” that combines overall and per capita GDP, as described in chapter 3, China only reaches US levels toward the end of the century. American wealth far exceeds Chinese wealth. China has little soft power, and its authoritarian values, disregard for human rights, and relentless focus on the primacy of the Communist Party are not widely admired around the world. It enjoys no alliances with economically important countries, in contrast to America’s traditionally extensive networks.
But China is catching up rapidly or passing the United States on most of the economic metrics, enhancing its capabilities for global economic leadership. Its centralized political system enables it to mobilize the country’s vast resources effectively in support of agreed policy objectives. Neither China nor the United States can dictate to the other, as the currency negotiations of 2005–13 and the trade negotiations of 2017–20 so clearly revealed. Each can impede most of the other’s initiatives.
The United States and China together are likely to account for more than half the world economy by mid-century. Their cooperation is required to successfully resolve virtually all major international economic problems, from global growth to climate change. Their failure to cooperate will doom most such efforts.
The relative economic positions of China and the United States differ from issue to issue (Johnston 2019a). The dollar remains the world’s key currency and the United States maintains considerable monetary power, though China’s huge foreign exchange reserves and international creditor status enable it to wield sizable financial leverage as well. China’s huge market and prodigious competitiveness place it at or near the top on the macroeconomic and trade side. China has become the world’s largest donor of foreign aid, through its state policy banks and the massive Belt and Road Initiative (BRI), and has attracted much support from poorer countries with its “develop economically and preserve your independence” mantra. The United States retains overall military primacy but China has caught up impressively, especially at the regional level. Technology is increasingly closely contested, especially with respect to cybersecurity and the Internet. The two economic superpowers have different capacities to lead the world in different issue areas.
But China presents the first real challenge to American economic supremacy since the United States became the world’s premier economy over a century ago. The Soviet Union was a formidable military rival throughout the Cold War, and forced a bipolar security configuration, but was never a serious economic player. Japan became a tough economic competitor but had less than half the population of the United States and depended on America for its national security. The European Union (EU) is as large as the United States economically but only acts together on a limited range of issues. China’s rise creates both a new bipolar foundation for the world economy and an unprecedented rival for the United States.
Like any rising power, China wishes and expects to become a respected global leader – whether or not it exhibits responsible leadership characteristics. Like any country, its international goals are rooted in its domestic imperatives. In this case, China wants the world to remain safe for the continued dominance of the Chinese Communist Party (CCP) in Beijing, above all. It resists external pressures and values that could threaten that supremacy. It increasingly projects its own pressures and values on other countries.
Chapter 4 addresses the central systemic question of whether China is satisfied or dissatisfied with the current international economic order. The answer is mixed and nuanced. China has benefited enormously from the open system created and nurtured by the United States and its allies, and recognizes as much. China consciously opted to engage with that system, including membership in all of the major international economic institutions, as an integral part of its development strategy. The payoff has been spectacular in terms of China’s economic growth and globalization. China is quite satisfied with these results.
However, China is now emphasizing domestic rather than international drivers of growth. It is seeking to reduce its dependence on outside forces, for security as well as economic reasons. The external share of its economy, though still substantial, has dropped dramatically over the
